July 1, 2013

How Government Can Actually Play Moneyball

The moment I saw the headline, I groaned. “Can Government Play Moneyball?” ask John Bridgeland and Peter Orszag—members of the George W. Bush and Barack Obama administrations, respectively—in the latest Atlantic. As empirically minded data-crunchers have disrupted fields from political forecasting to movie-making, the analogy to the sabermetric revolution in baseball—and specifically to the early-2000s Oakland Athletics’ practices, now known collectively as moneyball after Michael Lewis’ 2003 book, Moneyball—has been overused to the point of exhaustion (Ishouldknow).

But Bridgeland and Orszag’s question is worth considering. Can the government play moneyball? They argue that the federal government, operating in a climate of austerity not experienced for decades, should invest in empirical studies to determine the most efficient ways to spend the government’s money, thereby saving taxpayers over the long run. This is similar, they contend, to when the cash-strapped Athletics turned to the data-driven empiricism of sabermetrics, “replacing scouts’ traditional beliefs and biases about players with data-intensive studies of what skills actually contribute most to winning.” In other words: Find out what the best practices are, and adopt them.

That’s good advice. But Bridgeland and Orszag’s article is incomplete because it misses a big reason why the Athletics succeeded. Their key fallacy—a common one—is to conflate the adoption of sabermetric insights such as the value of on-base percentage with moneyball. The reason adopting sabermetrics enabled the Athletics to select talent more efficiently is not only that the sabermetric worldview was superior to baseball traditionalism—it’s that everyone else in baseball were traditional, which meant that adopting sabermetrics allowed the Athletics to exploit market inefficiencies.

Even in the early 2000s, though, it would have been better to be a team with the Athletics’ savvy but the New York Yankees’ payroll than just to be the Athletics. The Athletics were hamstrung by austerity and other rules in a way the federal government does not need to be. The government can’t play moneyball only because conservatives (and in some cases all politicians) would never let it.

Oakland’s radical insight wasn’t that sabermetrics are better. It was that ignoring standard operating procedures can lead you to market inefficiencies. To take a real-life example: Kevin Youkilis was not valuable to the Athletics simply because he drew a lot of walks; he was valuable because he drew a lot of walks and did not do many of the other things that other teams looked for, and therefore was less expensive than a more accurate analysis of his talents would have made him. Actually, baseball’s walks leader in 2002 played on the other side of the Bay—it was Barry Bonds, who had the second-most walks in history that year. He was a great player from a sabermetric vantage, but also a great one from the traditional vantage—batting average, home runs, RBI—and was valued accordingly. So he would not have been a moneyball pick, even though sabermetricians would have rated him extremely highly.

Likewise for government: Spending money a bit more wisely without finding and exploiting market inefficiencies by fundamentally changing the way of doing business is not government moneyball. What would government moneyball look like? Which market inefficiencies is the federal government equipped to exploit by doing things differently? It seems to me that if Oakland’s advantage was using sabermetrics in a league still beholden to the old ways, the federal government’s advantage is that, if it wants to be, it is bigger than anything else—a bigger buyer, a bigger seller. Government moneyball would mean taking advantage of the government’s size. Yankees moneyball, in other words.

Take Obamacare’s Independent Payment Advisory Board, the 15-member “death panel” of experts whose job is to find more efficient ways for Medicare to provide for its members. What will hopefully make IPAB effective isn’t only adopting medical best practices; it is, having identified those best practices, then using Medicare’s status as by far the largest purchaser of medical services in the United States to buy in bulk and make itself cheaper through those best practices. But you know what would be even more efficient? Even bigger Medicare—the federal government using its unique size to negotiate even better drug prices and to more effectively negotiate better prices for other medical services. But obviously that is a non-starter for conservatives.

To call the Pentagon the largest American buyer of military goods is to understate matters dramatically. Instead of tripling the amount of money it hands out in no-bid contracts, the Pentagon should endeavor to use its unique stature to force more competition among contractors, in time driving costs down. But that is unlikely, given that government largesse to the defense industry is a bipartisan priority.

In countless other areas, the government could use its sheer size to drive its own costs down and improve public policy. It could buy more energy-efficient vehicles and buildings, for example, juicing demand and creating competition for cheaper energy-efficient technology while, again, saving its own money by buying at wholesale. And so on.

Conservatives would argue that individual consumers and private actors concerned with profit are what create a more efficient market. But over the last 30 years, trends in government spending and the government’s role in the economy have represented a gigantic test of whether that proposition is true—and one result has been a rise in government expenditures, particularly in entitlements like Medicare. Part of the problem perhaps has been the government, as a market actor, forcing itself to adhere to the rules of other market actors, rather than taking advantage of its unique status. Changing the government’s role in the marketplace would make the government like the A’s. Sticking with that path would mean the government continuing to spend a great deal of money unwisely. You know, like the Mets.

It’s precisely the new austerity, brought on by both the recent recession and sequestration, that gives Bridgeland and Orszag hope that the government may reform its ways. “With $40 million to spend on players in 2002, the A’s had to compete on a comically uneven playing field with big-market teams like the Yankees, which spent $125 million on its roster that same year,” they write. “In other words, scarcity drove [A’s general manager Billy] Beane’s break from established tradition. We hope and expect it will have the same effect on Washington in the years to come.”

But, of course, Beane’s shit didn’t work in the playoffs. Meanwhile, the Yankees have won five World Series in the past 20 years—by spending money smartly (and sometimes not smartly), and most of all by spending lots of it. There is no market inefficiency like being bigger than everyone else.